An investor in distressed properties is marketing its fourth liquidating trust securitization of primarily troubled commercial real estate assets.

Värde Partners, a Dallas-based firm with over $12 billion in existing or previously distressed acquisitions, has pooled 201 of commercial, vacant land and residential properties in the $348.2 million VSD 2017-PLT1 asset-backed transaction. Most of the performing, non-performing or real-estate owned (REO) loans were acquired from financial institutions, and are secured by income-producing commercial properties such as office, retail and multi-family that are owned by Värde’s “scratch and dent” sponsoring affiliate. The majority are first-lien.

Kroll Bond Rating Agency issued a preliminary ‘BBB-’ structured finance rating to the $208.5 million Class A notes being offered in the transaction, which represent nearly 60% of the $299.6 million in acquisition costs Värde paid for the performing, non-performing or sub-performing loans underlying the deal. KBRA did not rate the subordinate equity interest tranche of $139.7 million of the deal.

The rating is similar to those Kroll assigned to Värde’s two previous liquidating securitizations: VFC 2015-3 and VFC 2014-2.

The 201 properties have an average unpaid balance of $1.88 million, with Värde ultimately looks to recover an average of $2.07 million with interest, based on a $1.73 million acquisition cost. The properties are divided among 168 borrower “relationships”, which each have an average unpaid principal obligation of $2.25 million.

While most of the loans are classified as “performing,” KBRA notes that they are “scratch and dent” liquidation holdings that lack clean performance histories and “may not be labeled as such in traditional CMBS securitizations such as conduits or large loan single borrower transactions.”  

The performance missteps range from 30-days delinquent (21 loans, or 8.3% of the pool), performing but previously modified, or current loans that are in default due to loan covenant breaches. Most of the loans have ongoing cash flow from debt service payments, giving them a “higher likelihood” of repayment that the small share of non-performing and REO assets in the collateral.

Värde’s three previous securitizations, which total over $1.1 billion, have experienced no losses to date, according to KBRA. The loans are serviced by the company’s Trimont Real Estate Advisors subsidiary.

The top three loan types in the pool are office (32.8%), retail (28.7%) and multifamily (15.1%). The largest loan in the pool is a Class A, refurbished student-housing complex near West Virginia University with an unpaid principal balance of $26 million.

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